Alibaba’s U.S. Listing Is Evolution, Not Revolution, for Corporate China

“What a joy to have friends coming from afar!” Confucius’ famous expression of elation sums up Wall Street’s feelings about the landmark listing of Alibaba Group Holding Ltd. in New York.

The arrival of one of China’s e-commerce champions on U.S. capital markets has the domestic financial community swelling with pride.

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In private- — public statements about the listing are disliked by our faraway friends — stock-exchange officials and analysts say Alibaba’s initial public offering will cement the dominant position of the U.S. as the market for technology companies.

For some, the mammoth IPO — which could raise $15 billion, value Alibaba at around $100 billion and yield hundreds of millions of dollars in fees for banks and law firms — could prompt other Chinese corporate giants to bypass Hong Kong and Shanghai and come stateside. The recent announcement of a U.S. share sale by Weibo Corp., China’s answer to Twitter, bolstered this view.

The excitement is understandable. Alibaba is a big company with solid earnings and a proven business model. It also sits at the intersection of two of the most hype-prone parts of the financial world, banking and technology, and hails from a country whose sheer size and economic growth has analysts and the media reaching for superlatives time and time again.

Caution doesn’t come naturally to Wall Street and Silicon Valley, but that is exactly what is needed now. Even if its New York IPO goes well, Alibaba will be more of a symbol than a trailblazer.

In many ways, Alibaba is the ideal flag-bearer for a new breed of Chinese company: It operates in a modern, global industry rather than “old-economy” sectors such as utilities and banking; it was founded by an entrepreneur, the former English teacher Jack Ma, and not the government; and it has both copied, and improved upon, the business models of foreign rivals such as Amazon.com Inc. and Google Inc.

As such, Alibaba represents the fourth stage of the internationalization of Chinese business. First, in the late 1990s, came the telecommunication companies: lumbering, state-controlled giants that sold shares in Hong Kong and New York on the strength of their quasimonopolies back home.

The early 2000s saw the rise of the giant banks–still state-controlled, still selling the dream of China’s rising wealth and breakneck growth. I was in Hong Kong at the time and Beijing’s one-two punch was startlingly successful. First, the government used listings to clean up the banks’ balance sheets. Then, it persuaded foreign banks to share their know-how with newly listed Chinese lenders in exchange for the vague promise of future access to the country’s markets.

The foreign lenders are still waiting, but behemoths such as Industrial & Commercial Bank of China Ltd. and Bank of China Ltd. are much stronger and better run because of their IPOs. More telling, those banks didn’t list in New York because they didn’t need to–Hong Kong’s stock market was on fire–and didn’t want to put up with American rules and regulations.

The third stage was the most troublesome, as a swath of small Chinese companies with shaky accounting listed and then delisted in New York. Now, large groups such as Alibaba and Weibo are braving U.S. markets again.

“These are real corporations driven by real people,” says Danny Palmer, a former Morgan Stanley banker who worked on many Hong Kong IPOs. “It is a revelation for investors: ‘Oh my goodness, they are not just copying the U.S. model.’”

But that doesn’t mean the floodgates are about to open. Alibaba and Weibo are exceptions.

First, they are naturally drawn to markets where most of their rivals, as well as specialist investors and analysts, are. Second, U.S. technology valuations are very attractive, enabling new IPOs to get more bang for their buck. Third, at least in Alibaba’s case, a decision by the Hong Kong exchange not to relax its corporate-governance rules made New York an obligatory choice. My intelligence is that Alibaba tried extremely hard to list in Hong Kong but couldn’t make it work.

Not many Chinese companies are affected by similar considerations. As Jon Christianson, head of the Beijing office at the law firm Skadden, Arps, Slate, Meagher & Flom LLP, tells me, “Unless there is a compelling reason to go to the States, Chinese companies would rather be in Hong Kong or China.”

In other words, the battle for the cream of the Chinese crop among the Hong Kong, Shanghai and New York exchanges won’t be defined by an IPO that is as large as it is idiosyncratic.

Barring a stock-market collapse, Alibaba’s listing will be well received by U.S. investors. But it should be seen as a stage in Corporate China’s long march, not a great leap forward.

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